Category Archives: Market Share

How Health Insurance Monopolies Affect Your Care

Posted on by • Posted in Competition, Competition on Price, Competitive Bidding, Health Insurance Denial, Health Insurance Industry, Health Insurance Pre Authorization, Market Consolidation, Market Failure, Market Power, Market Share, Monopoly, Monopoly Behavior, Profit, Profit Margin, Profit Model, Profit Motive • Tagged , , , , • Leave a comment
https://time.com/7302346/health-insurance-monopolies-patient-care/?utm_source=beehiiv&utm_medium=email&utm_campaign=newsletter-health-matters&_bhlid=b8ef51635479257a1d1d099c9581345a28c94b91

Not long ago, Dr. Richard Menger, a neurosurgeon, was ready to operate on a 16-year-old with complex scoliosis. A team of doctors had spent months preparing for the surgery, consulting orthopedists and cardiologists, even printing a 3D model of the teen’s spine.

The surgery was scheduled for a Friday when Menger got the news: the teen’s insurer, Blue Cross Blue Shield of Alabama, had denied coverage of the surgery. 

It wasn’t particularly surprising to Menger, who has been practicing in Alabama since 2019. Alabama essentially has one private insurer, Blue Cross Blue Shield of Alabama, which has a whopping 94% of the market of large-group insurance plans, according to the health policy nonprofit KFF. That dominance allows the insurer to consistently deny claims, many doctors say, charge people more for coverage, and pay lower rates to doctors and hospitals than they would in other states.

“It makes the natural problems for insurance that much more magnified because there’s no market competition or choice,” says Menger, who in 2023 wrote an op-ed in 1819 News, a local news site, arguing that ending Blue Cross Blue Shield of Alabama’s health insurance monopoly would make people in the state healthier.

Blue Cross Blue Shield of Alabama also has the largest share of individual insurance plans in the state, according to data from the Centers for Medicaid & Medicare Services. Perhaps not coincidentally, Alabama also had the highest denial rates for in-network claims by insurers on the individual marketplace in 2023, according to a KFF analysis: 34%. Neighboring Mississippi, where the majority insurer has less of the market share at 81%, has an average denial rate of 15%.

Alabama is an extreme case, but people in many other states face health insurance monopolies, too. One insurer, Premera Blue Cross Group, has a 94% share of the large-group market in Alaska, and Blue Cross Blue Shield of Wyoming has a 91% market share in that state. In 18 states, one insurer has 75% or more of the large-group health insurance marketplace, according to KFF data.

These monopolies drive up costs, says Leemore Dafny, a professor at Harvard Business School and Harvard Kennedy School who has long studied competition among health insurance companies and providers.

“More competitors tend to drive lower premiums and more generous benefits for consumers,” she says. “There’s a lot of concern from analysts like myself about concentration in a range of sectors, including health insurance.”

Bruce A. Scott, the immediate past president of the American Medical Association, has said that when the dominant insurer in his state of Kentucky was renegotiating its contract with his medical group, it offered lower rates than it had paid six years before. “This same type of financial squeeze play is found nationwide, and its frequency has been exacerbated by health insurance industry consolidation,” he wrote in The Hill in 2023.

What happened to competition? There used to be a lot more regional health insurers, Dafny says. But as costs started to rise, they didn’t have enough leverage to negotiate prices down with providers and stay profitable. As a result, many were happy to be acquired by larger companies. Then hospitals and doctor’s offices merged to get more leverage against the bigger insurers. Now, there’s a lot of concentration among both provider groups and insurers.

“None of this had anything to do with taking better care of patients,” she says. “It had to do with trying to get the upper hand.” 

In a statement to TIME, Blue Cross Blue Shield of Alabama said that it was working to make the prior authorization process more transparent and reverse the requirement of prior authorization for certain in-network medical services. It will attempt to answer at least 80% of requests for prior authorization in near real-time by 2027, it says. (A coalition of major health insurers recently vowed to fix their prior authorization processes under pressure from the federal government.)

The insurer also says it welcomes competition. “We know Alabamians have a choice when it comes to choosing their health insurance carrier and we don’t take that for granted,” a spokesperson said in the statement. In the commercial and underwritten market—which represents the bulk of its business—Blue Cross Blue Shield Alabama competes with four other companies that sell individual, family, and group plans, the company says, and it competes with 68 companies who sell Medicare plans in Alabama. Its success in the state is partly because it sells policies in every county in Alabama, the insurer says, while others do not. 

Other casualties of such a concentrated health-insurance marketplace are rural hospitals and providers. Small rural hospitals are often independent and have not merged with other systems like many of their large urban counterparts, so they have an even harder time negotiating with the one big insurer in the state, says Harold Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, a national policy center that studies health-care costs. That means big insurers will often refuse to cover procedures or pay lower prices for services.

“I’ve had rural hospitals tell me they can’t even get the health plan on the phone,” Miller says.

In the past decade, the Department of Justice has stopped some mergers, but has not been very aggressive at stopping consolidation in the health-care industry, Dafny says. That may be in part because the courts require a high standard of evidence to block a transaction, and the government might have been worried it would have lost whatever cases it brought.

A few factors prevent insurers with a monopoly from driving costs too high, says Benjamin Handel, an economics professor at the University of California, Berkeley who studies health care. One is a regulation called minimum loss ratio that essentially requires insurers to spend a certain share of what they earn from premiums on medical care. Another is that an insurer with a monopoly that angers consumers might attract attention from regulators, he says.

Of course, there’s not a whole lot regulators can do to make a marketplace more competitive. A state could try to incentivize more insurers to enter their states with tax breaks or other sweeteners, but it’s very hard to enter a market and offer low rates right away. The establishment of the health-care marketplaces in the Affordable Care Act allowed new entrants, Dafny says, but many of them did not survive.

Menger, the Alabama doctor, says that he and his colleagues—and therefore their patients—are basically stuck. His staff has to spend 10-15 hours a week negotiating with the insurer to get prior authorizations that sometimes don’t come, even while patients pay higher premiums. 

The teenage boy eventually got approved for the scoliosis surgery, but not after the family went through a lot of stress with postponements and uncertainty. “I think it’s pretty clear that the more competition, the better things are,” Menger says. “This prior authorization nonsense is really hurting patients.”

Optum’s behavioral health business: 5 things to know

Posted on by • Posted in Access & Quality of Healthcare, Behavioral Health, Market Consolidation, Market Share, Market Trends, Mental Health, Mergers & Acquisitions, Optum, Optum Health, Optum Insight, Optum Rx, OptumRx • Leave a comment
https://www.beckersbehavioralhealth.com/behavioral-health-news/optums-behavioral-health-business-5-things-to-know.html?origin=PayerE&utm_source=PayerE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

UnitedHealth Group’s Optum, the largest employer of physicians in the U.S., is expanding its reach in behavioral health. 

The company added 45,000  therapists, psychiatrists and behavioral health providers to its network in 2023, and it has more than 430,000 behavioral health clinicians in its network overall. 

Here are five things to know about Optum’s behavioral health offerings: 

  1. The company is acquiring behavioral health clinics. Optum recently picked up Care Counseling, which employs more than 200 clinicians at 10 clinics in the Minneapolis area. In 2022, Optum acquired Refresh Mental Health, which operates more than 300 outpatient sites in 37 states.
  2. Optum’s acquisitions of behavioral health providers have helped cut wait times for patients, Optum CEO Heather Cianfrocco said in May.

    “On average it takes over 50 to 60 days to get an appointment for high-quality behavioral care,” she said. “We started acquiring our own behavioral providers to be able to reduce that access issue.” 
  3. The company is also targeting in-home behavioral care. In December 2023, Amar Desai, MD, CEO of Optum Health, said the company had integrated behavioral care into its home health offerings.

    “As a practicing physician, I am particularly excited that we are becoming the practice and partner of choice in the marketplace,” Dr. Desai said of the business.
  4. Optum also administers behavioral health benefits systems for states, though it recently lost contracts to manage programs in Maryland and Idaho.
  5. OptumRx, a pharmaceutical benefit manager, provides medication management for behavioral health, substance use disorder and other complex drugs for more than 1 million people each year.

University of California, UCSF reach agreement on purchase of Dignity hospitals

Posted on by • Posted in Academic Medical Center, Antitrust, Community Benefit, Competition, Health System, Hospital, Hospital Industry, Market Consolidation, Market Share, Mergers & Acquisitions • Leave a comment
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The entities agreed to maintain services, provide capital investments and protect competition in the healthcare market.

California Attorney General Rob Bonta announced a settlement agreement this week reached by The Regents of the University of California and UCSF Health regarding their $100 million purchase of Dignity Health’s two San Francisco hospitals, St. Mary’s Medical Center (SMMC) and Saint Francis Memorial Hospital (SFMH).

Dignity Health is a nonprofit public benefit corporation that owns and operates SFMH, a 259-licensed-bed general acute care hospital, and SMMC, a 240-licensed-bed general acute care hospital. Both hospitals serve a diverse community, including a large number of elderly, unhoused and publicly insured patients who may rely on Medi-Cal, Medicare or charity care to access essential health services.

Under the settlement agreement approved by the San Francisco Superior Court, The Regents and UCSF Health commit to maintain services for the unhoused and Medi-Cal and Medicare beneficiaries, provide $430 million in capital investments, protect competition in the healthcare market and safeguard the affordability of and access to services for residents of San Francisco.

WHAT’S THE IMPACT

The Regents and UCSF Health agreed to a number of conditions over the next 10 years, including operating and maintaining SFMH and SMMC as licensed general acute care hospitals with the same types and levels of services, and associated staffing. They also agreed to continue participating in Medi-Cal and Medicare.

Also agreed upon was providing an annual amount of charity care at SFMH equal to or greater than $6.5 million and at SMMC equal to or greater than $3.5 million, with an annual increase of 2.4% at both hospitals.

The two entities agreed to provide an annual amount of community benefit spending for community healthcare needs at SFMH equal to or greater than $1.6 million and at SMMC equal to or greater than $10.7 million, to increase yearly by 2.4% at both hospitals.

UCSF Health and The Regents also pledged to invest at least $430 million, including at least $80 million for electronic medical record systems and related technologies, and at least $350 million in deferred maintenance and physical infrastructure improvements at both hospitals.

In addition to those agreements, they also agreed to a number of conditions over a seven-year period meant to maintain competition in the healthcare market, in part by maintaining contracts with the City and County of San Francisco for services at SFMH and SMMC unless terminated for cause.

The Regents and UCSF Health agreed to not condition medical staff privileges or contracts on the employment, contracting, affiliation, or appointment status of a physician with UCSF Health or any affiliate; not impose any requirement on any member of the hospitals’ medical staff, as a condition of either their medical staff membership or privileges that restricts them from contracting with providers other than UC Health; and negotiate all payer contracts for the hospitals separately and independently from payer contracts for UCSF Health, and maintain an information firewall between the two negotiating teams.

Finally, the two entities agreed to require, for five years, a price growth cap that limits the maximum that the hospitals may charge a payer from year to year upon renegotiation of contracts.

THE LARGER TREND

Mergers and acquisitions are expected to rebound this year after M&A activity fell to its lowest level in 10 years globally in 2023, according to Reuters.

Deal making last year was weighed down by high interest rates, economic uncertainty and a regulatory scrutiny, with all but the last factor slowly abating for renewed confidence.

BIG INSURANCE 2023: Revenues reached $1.39 trillion thanks to taxpayer-funded Medicaid and Medicare Advantage businesses

Posted on by • Posted in 2024 Election Issues, ACA, Executive Compensation, Health Insurance Denial, Health Insurance Industry, Healthcare Reform, Market Consolidation, Market Power, Market Share, Medicare, Medicare Advantage, Medicare Supplement, Net Income, Out of Pocket Expenses, Pharmaceutical Industry, Pharmacy Benefits Management, Profit Margin • Leave a comment
https://healthcareuncovered.substack.com/p/big-insurance-2023-revenues-reached?utm_source=substack&utm_medium=email

The Affordable Care Act turned 14 on March 23. It has done a lot of good for a lot of people, but big changes in the law are urgently needed to address some very big misses and consequences I don’t believe most proponents of the law intended or expected. 

At the top of the list of needed reforms: restraining the power and influence of the rapidly growing corporations that are siphoning more and more money from federal and state governments – and our personal bank accounts – to enrich their executives and shareholders.

I was among many advocates who supported the ACA’s passage, despite the law’s ultimate shortcomings. It broadened access to health insurance, both through government subsidies to help people pay their premiums and by banning prevalent industry practices that had made it impossible for millions of American families to buy coverage at any price. It’s important to remember that before the ACA, insurers routinely refused to sell policies to a third or more applicants because of a long list of “preexisting conditions” – from acne and heart disease to simply being overweight – and frequently rescinded coverage when policyholders were diagnosed with cancer and other diseases.

While insurance company executives were publicly critical of the law, they quickly took advantage of loopholes (many of which their lobbyists created) that would allow them to reap windfall profits in the years ahead – and they have, as you’ll see below. 

Among other things, the ACA made it unlawful for most of us to remain uninsured (although Congress later repealed the penalty for doing so). But, notably, it did not create a “public option” to compete with private insurers, which many advocates and public policy experts contended would be essential to rein in the cost of health insurance. Many other reform advocates insisted – and still do – that improving and expanding the traditional Medicare program to cover all Americans would be more cost-effective and fair. 

I wrote and spoke frequently as an industry whistleblower about what I thought Congress should know and do, perhaps most memorably in an interview with Bill Moyers. During my Congressional testimony in the months leading up to the final passage of the bill in 2010, I told lawmakers that if they passed it without a public option and acquiesced to industry demands, they might as well call it “The Health Insurance Industry Profit Protection and Enhancement Act.”

A health plan similar to Medicare that could have been a more affordable option for many of us almost happened, but at the last minute, the Senate was forced to strip the public option out of the bill at the insistence of Sen. Joe Lieberman (I-Connecticut), who died on March 27, 2024. The Senate did not have a single vote to spare as the final debate on the bill was approaching, and insurance industry lobbyists knew they could kill the public option if they could get just one of the bill’s supporters to oppose it. So they turned to Lieberman, a former Democrat who was Vice President Al Gore’s running mate in 2000 and who continued to caucus with Democrats. It worked. Lieberman wouldn’t even allow a vote on the bill if it created a public option. Among Lieberman’s constituents and campaign funders were insurance company executives who lived in or around Hartford, the insurance capital of the world. Lieberman would go on to be the founding chair of a political group called No Labels, which is trying to find someone to run as a third-party presidential candidate this year.

The work of Big Insurance and its army of lobbyists paid off as insurers had hoped. The demise of the public option was a driving force behind the record profits – and CEO pay – that we see in the industry today.

The good effects of the ACA:

Nearly 49 million U.S. residents (or 16%) were uninsured in 2010. The law has helped bring that down to 25.4 million, or 8.3% (although a large and growing number of Americans are now “functionally uninsured” because of unaffordable out-of-pocket requirements, which President Biden pledged to address in his recent State of the Union speech). 

The ACA also made it illegal for insurers to refuse to sell coverage to people with preexisting conditions, which even included birth defects, or charge anyone more for their coverage based on their health status; it expanded Medicaid (in all but 10 states that still refuse to cover more low-income individuals and families); it allowed young people to stay on their families’ policies until they turn 26; and it required insurers to spend at least 80% of our premiums on the health care goods and services our doctors say we need (a well-intended provision of the law that insurers have figured out how to game).

The not-so-good effects of the ACA: 

As taxpayers and health care consumers, we have paid a high price in many ways as health insurance companies have transformed themselves into massive money-making machines with tentacles reaching deep into health care delivery and taxpayers’ pockets. 

To make policies affordable in the individual market, for example, the government agreed to subsidize premiums for the vast majority of people seeking coverage there, meaning billions of new dollars started flowing to private insurance companies. (It also allowed insurers to charge older Americans three times as much as they charge younger people for the same coverage.) Even more tax dollars have been sent to insurers as part of the Medicaid expansion. That’s because private insurers over the years have persuaded most states to turn their Medicaid programs over to them to administer.

Insurers have bulked up incredibly quickly since the ACA was enacted through consolidation, vertical integration, and aggressive expansion into publicly financed programs – Medicare and Medicaid in particular – and the pharmacy benefit space. Premiums and out-of-pocket requirements, meanwhile, have soared.

We invite you to take a look at how the ascendency of health insurers over the past several years has made a few shareholders and executives much richer while the rest of us struggle despite – and in some cases because of – the Affordable Care Act.

BY THE NUMBERS

In 2010, we as a nation spent $2.6 trillion on health care. This year we will spend almost twice as much – an estimated $4.9 trillion, much of it out of our own pockets even with insurance. 

In 2010, the average cost of a family health insurance policy through an employer was $13,710. Last year, the average was nearly $24,000, a 75% increase.

The ACA, to its credit, set an annual maximum on how much those of us with insurance have to pay before our coverage kicks in, but, at the insurance industry’s insistence, it goes up every year. When that limit went into effect in 2014, it was $12,700 for a family. This year, it has increased by 48%, to $18,900. That means insurers can get away with paying fewer claims than they once did, and many families have to empty their bank accounts when a family member gets sick or injured. Most people don’t reach that limit, but even a few hundred dollars is more than many families have on hand to cover deductibles and other out-of-pocket requirements. Now 100 million Americans – nearly one of every three of us – are mired in medical debt, even though almost 92% of us are presumably “covered.” The coverage just isn’t as adequate as it used to be or needs to be.

Meanwhile, insurance companies had a gangbuster 2023. The seven big for-profit U.S. health insurers’ revenues reached $1.39 trillion, and profits totaled a whopping $70.7 billion last year.

SWEEPING CHANGE, CONSOLIDATION–AND HUGE PROFITS FOR INVESTORS

Insurance company shareholders and executives have become much wealthier as the stock prices of the seven big for-profit corporations that control the health insurance market have skyrocketed.

NOTE: The Dow Jones Industrial Average is listed on this chart as a reference because it is a leading stock market index that tracks 30 of the largest publicly traded companies in the United States.

REVENUES collected by those seven companies have more than tripled (up 346%), increasing by more than $1 trillion in just the past ten years.

PROFITS (earnings from operations) have more than doubled (up 211%), increasing by more than $48 billion.

The CEOs of these companies are among the highest paid in the country. In 2022, the most recent year the companies have reported executive compensation, they collectively made $136.5 million.

U.S. HEALTH PLAN ENROLLMENT

Enrollment in the companies’ health plans is a mix of “commercial” policies they sell to individuals and families and that they manage for “plan sponsors” – primarily employers and unions – and government/enrollee-financed plans (Medicare, Medicaid, Tricare for military personnel and their dependents and the Federal Employee Health Benefits program).

Enrollment in their commercial plans grew by just 7.65% over the 10 years and declined significantly at UnitedHealth, CVS/Aetna and Humana. Centene and Molina picked up commercial enrollees through their participation in several ACA (Obamacare) markets in which most enrollees qualify for federal premium subsidies paid directly to insurers.

While not growing substantially, commercial plans remain very profitable because insurers charge considerably more in premiums now than a decade ago.

(1) The 2013 total for CVS/Aetna was reported by Aetna before its 2018 acquisition by CVS. (2) Humana announced last year it is exiting the commercial health insurance business. (3) Enrollment in the ACA’s marketplace plans account for all of Molina’s commercial business.

By contrast, enrollment in the government-financed Medicaid and Medicare Advantage programs has increased 197% and 167%, respectively, over the past 10 years.

(1) The 2013 total for CVS/Aetna was reported by Aetna before its 2018 acquisition by CVS.

Of the 65.9 million people eligible for Medicare at the beginning of 2024, 33 million, slightly more than half, enrolled in a private Medicare Advantage plan operated by either a nonprofit or for-profit health insurer, but, increasingly, three of the big for-profits grabbed most new enrollees. 

Of the 1.7 million new Medicare Advantage enrollees this year, 86% were captured by UnitedHealth, Humana and Aetna. 

Those three companies are the leaders in the Medicare Advantage business among the for-profit companies, and, according to the health care consulting firm Chartis, are taking over the program “at breakneck speed.”

(1) The 2013 total for CVS/Aetna was reported by Aetna before its 2018 acquisition by CVS. (2,3) Centene’s and Molina’s totals include Medicare Supplement; they do not break out enrollment in the two Medicare categories separately.

It is worth noting that although four companies saw growth in their Medicare Supplement enrollment over the decade, enrollment in Medicare Supplement policies has been declining in more recent years as insurers have attracted more seniors and disabled people into their Medicare Advantage plans.

OTHER FEDERAL PROGRAMS

In addition to the above categories, Humana and Centene have significant enrollment in Tricare, the government-financed program for the military. Humana reported 6 million military enrollees in 2023, up from 3.1 million in 2013. Centene reported 2.8 million in 2023. It did not report any military enrollment in 2013.

Elevance reported having 1.6 million enrollees in the Federal Employees Health Benefits Program in 2023, up from 1.5 million in 2013. That total is included in the commercial enrollment category above. 

PBMs

As with Medicare Advantage, three of the big seven insurers control the lion’s share of the pharmacy benefit market (and two of them, UnitedHealth and CVS/Aetna, are also among the top three in signing up new Medicare Advantage enrollees, as noted above). CVS/Aetna’s Caremark, Cigna’s Express Scripts and UnitedHealth’s Optum Rx PBMs now control 80% of the market.

At Cigna, Express Scripts’ pharmacy operations now contribute more than 70% to the company’s total revenues. Caremark’s pharmacy operations contribute 33% to CVS/Aetna’s total revenues, and Optum Rx contributes 31% to UnitedHealth’s total revenues. 

WHAT TO DO AND WHERE TO START

The official name of the ACA is the Patient Protection and Affordable Care Act. The law did indeed implement many important patient protections, and it made coverage more affordable for many Americans.

But there is much more Congress and regulators must do to close the loopholes and dismantle the barriers erected by big insurers that enable them to pad their bottom lines and reward shareholders while making health care increasingly unaffordable and inaccessible for many of us.

Several bipartisan bills have been introduced in Congress to change how big insurers do business. They include curbing insurers’ use of prior authorization, which often leads to denials and delays of care; requiring PBMs to be more “transparent” in how they do business and banning practices many PBMs use to boost profits, including spread pricing, which contributes to windfall profits; and overhauling the Medicare Advantage program by instituting a broad array of consumer and patient protections and eliminating the massive overpayments to insurers. 

And as noted above, President Biden has asked Congress to broaden the recently enacted $2,000-a-year cap on prescription drugs to apply to people with private insurance, not just Medicare beneficiaries. That one policy change could save an untold number of lives and help keep millions of families out of medical debt. (A coalition of more than 70 organizations and businesses, which I lead, supports that, although we’re also calling on Congress to reduce the current overall annual out-of-pocket maximum to no more than $5,000.) 

I encourage you to tell your members of Congress and the Biden administration that you support these reforms as well as improving, strengthening and expanding traditional Medicare. You can be certain the insurance industry and its allies are trying to keep any reforms that might shrink profit margins from becoming law. 

Here are the Five Areas the New DOJ Task Force on Monopolies in Health Care Should Focus On

Posted on by • Posted in Antitrust, Competition, Denial, Denial Rates, Dept of Justice (DOJ), Health Insurance Denial, Health Insurance Industry, High Deductible Health Plans, Market Consolidation, Market Power, Market Share, Mergers & Acquisitions, Monopoly, Monopoly Behavior, Out of Pocket Expenses, Out-of-Network, Pharmacy Benefits Management, Prior Authorization, Surprise Bills, Underinsured, Vertical Consolidation, Vertical Integration, Vertical Merger, Vertical Mergers • Leave a comment
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Abuses by payers are myriad, but these five areas could bear the most fruit for federal antitrust investigators.

Earlier this month, the U.S. Department of Justice announced it has haunched an investigation into “issues regarding payer-provider consolidation” along with other problems associated with mergers and acquisitions in health care. This is significant. For years Washington has trained its oversight authority on pharmaceutical manufacturers, private equity investments in health care and, more recently, pharmacy benefits managers controlled by big insurers. This has held bad actors like Martin Skhreli and Steward Healthcare accountable. But, it has also let insurers grow ever larger, under the radar. 

No longer. 

This task force will specifically evaluate the following, as an example: “A health insurance company buys several medical practices that compete with each other. It also prohibits its medical practices from contracting with rival health insurance companies.” The government will also dig into “anticompetitive uses of health care data,” “preventing transparency,” “price fixing,” and other areas that could drag nefarious activities of insurers into the spotlight. 

I applaud the Department of Justice’s continued focus on these issues, building on the Department’s action announced in February to begin an antitrust investigation into UnitedHealth Group. (If you haven’t read the piece we published in February on UnitedHealth’s self-dealing that helped lead DOJ to open that antitrust inquiry, you can do so here.) The following are a few areas of low-hanging fruit that I hope the task force will focus on as they consider the impact insurers’ ongoing vertical integration has had on the overall health care system.

1. Insurers purchasing physician practices

Once a low-profile issue, Congress and the Biden administration alike have increasingly turned their focus to insurance companies – often referred to as payers – that now own and operate physician practices and clinics – those being paid. Even for someone without a law degree, it is easy to see the conflict this creates, particularly at scale. 

There is the oft-cited statistic that UnitedHealth has said that through its Optum division, the company employs or otherwise controls about 10 percent of doctors in the U.S. – around 130,000 physicians and other practitioners in 16 states. This prompted me to take a closer look at publicly available information on the number of doctors employed by other insurers to get a better handle on how much control of physician practices payers now have. 

It is difficult to put a percentage on physicians employed by each insurer, but it is clear that the others are following UnitedHealth’s lead. CVS/Aetna purchased Signify Health in 2023, adding 10,000 clinicians to its portfolio. The company says it supports “more than 40,000 physicians, pharmacists, nurses and nurse practitioners.” 

Clearly taking a page out of UnitedHealth’s playbook, Elevance (formerly Anthem), which owns Blue Cross Blue Shield plans in 14 states announced last month a “strategic partnership” with 900 providers across several states. Elevance did not disclose the terms of the deal except to say it, “will primarily be through a combination of cash and our equity interest in certain care delivery and enablement assets of Carelon Health.” 

As insurers have acquired physician practices, they also have created a rinse-and-repeat strategy associated with kicking physicians they don’t own out of network, and in some cases targeting those same practices for acquisition. Aetna and Humana recently told investors they will be reviewing their networks of physicians, signaling they’ll soon be further narrowing their networks. A good question for this task force: when insurers review those contracts with doctors, do they ever kick the doctors they employ out of network? (Doubtful.) This could specifically draw attention from the task force’s focus on “health care contract language and other practices that restrict competition,” such as contract provisions that require or encourage patients to seek care from doctors directly employed or closely controlled by patients’ insurers.

Additionally, UnitedHealth CEO Andrew Witty recently told analysts, “As I think you see some of the funding changes play out across the — across the next few years, I suspect that may also create new opportunities for us as different companies assess their positions.” My translation: UnitedHealth’s burdensome business practices and the way it shortchanges doctors (those “funding changes” he referenced) contribute to the financial distress that is forcing many health care providers to “assess their positions.”

As the task force continues to consider the impact of private equity in health care monopolies, transactions like this one should receive equal consideration for their lack of transparency and overall impact on market consolidation.

2. Co-mingling of middlemen

I have watched with interest for over the past year as both Democrats and Republicans in Washington increasingly trained their fire on pharmacy benefit managers. The natural next area of focus in that space, which this new task force could advance, should be around how the

three PBMs that control 80 percent of market share are all combined with health insurance companies – namely CVS/Aetna (Caremark), UnitedHealth (Optum Rx), and Cigna (Express Scripts). 

An important, and politically popular, area where this consolidation has played out is in the squeeze placed on small, independent pharmacists across the country. More than 300 community pharmacies have closed in the past year alone, out of an inability to operate or push back on unfair margins pushed by these PBM-insurer monopolies. As we have written here, the fees these PBMs charge have increased more than 100,000 percent over the past decade, and are quietly contributing significantly to the profits of the largest health insurers. 

We still have little insight into how these business lines interact with each other, and the ultimate impact that has on patients. Given the enormous influence just three insurance companies have over what prescriptions Americans can receive, and how much should be paid for each prescription, the task force would do well to focus on what insurers and PBMs are doing behind the scenes to maximize profits and limit patient access to prescription drugs. It’s already gaining traction on Capitol Hill, with one Congressman recently saying, “I’ll continue to bust this up … this vertical integration in health care.”

3. Prior authorization requests

CVS/Aetna shares were hammered after the company reported a significant increase in payment of Medicare Advantage claims during the first three month is of this year. Expect all insurers to notice. And as they have seen their forecasts fall short of Wall Street’s expectations – particularly because of increasing scrutiny in Washington of Medicare Advantage – these corporations will look to increase their already aggressive use of prior authorization to limit claims payments.

It is not as though insurers make seeking the care you need easy. Far from it. Prior authorization has become “medical injustice disguised as paperwork,” as the New York Times said in a recent, excellent video detailing the widespread nature of this profiteering practice. 

While not a stated direct focus of this task force, the increased impact of prior authorization in care delivery is a direct outgrowth of a few large health insurers effectively controlling the marketplace. As insurers directly employ more doctors and enroll more Americans in their plans, they can use prior authorization to increasingly determine whether a patient can get care, period. 

Scrutiny in this space could add momentum to increasing activity in state legislatures and Washington to rein in excessive prior authorization. As of early March, nine states and the District of Columbia had passed bills to limit how far insurers could go with prior authorization. And earlier this year, the Centers for Medicare and Medicaid released a final rule that is expected to save physicians $15 billion over the next decade by putting limits on insurer prior authorization tactics. 

4. Rising out-of-pocket costs

Regular readers of this newsletter know one of my crusades is to ensure folks who pay good money for health insurance – out of their paychecks or through their tax dollars – can use it when they need it. It was a big win earlier this year for the Lower Out of Pockets Now coalition (which I lead) when President Biden called for a cap on prescription drug out-of-pocket costs of $2,000 annually for everybody, not just Medicare beneficiaries. 

If there was true competition and real consumer choice in health insurance, payers wouldn’t be able to get away with increasingly shifting patients into high-deductible plans. But the fact that a few big players control the health insurance market has allowed the oligopoly of payers to do just that, with ever-rising deductibles alongside ever-rising premiums. 

The task force’s focus on price fixing, collusion, and transparency in health care costs will, I hope, include some focus on how insurers use their size and clout to drive up out-of-pocket costs and premiums simultaneously – with little recourse to employers or their employees.

5. Implementing crystal clear laws and rules in health care

You know you’re a monopoly or close to it when you can pretty much do whatever you want and get away with it. Look no further than America’s health insurance companies and implementation of the No Surprises Act. 

As I wrote earlier this year, Congress and CMS have been clear about how out-of-network hospital bills should be negotiated between insurers and physicians. Yet in case after case, including many that have become the basis of lawsuits, insurers are clearly flouting the Act passed by Congress and the rules promulgated by CMS. Payers are doing this, doctors have said, simply because of their size and ability to weather criticism from physicians, regulators, and the courts – while doctors struggle to pay their bills with significant payments still owed pending out-of-network negotiations with insurers. 

One would hope, at a minimum, this task force, focused on rooting out the ills of monopolies, would document how insurers are well aware of how they are supposed to implement legislation like the No Surprises Act, but flout it anyway.

Wall Street Yawned as Congress Grilled UnitedHealth’s CEO but Went Ballistic on CVS/Aetna Over Medicare Advantage Claims

Posted on by • Posted in Citizens United vs Federal Election Commission, CVS Health, Federal Trade Commission (FTC), Health Insurance Industry, Lobbyist, Market Consolidation, Market Power, Market Share, Medicare Advantage, Monopoly Behavior, Pharmaceutical Industry, Pharmacy Benefits Management, UnitedHealth Group, UnitedHealthcare, Vertical Consolidation, Vertical Integration • Leave a comment
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After UnitedHealth Group CEO Andrew Witty’s appearances at two congressional committee hearings last week, I had planned to write a story about what the lawmakers had to say. One idea I considered was to publish a compilation of some of the best zingers, and there were plenty, from Democrats and Republicans alike. 

I reconsidered that idea because I know from the nearly half-century I have spent on or around Capitol Hill in one capacity or another that those zingers were carefully crafted by staffers who know how to write talking points to make them irresistible to the media. As a young Washington correspondent in the mid-to-late’70s, I included countless talking points in the stories I wrote for Scripps-Howard newspapers. After that, I wrote talking points for a gubernatorial candidate in Tennessee. I would go from there to write scads of them for CEOs and lobbyists to use with politicians and reporters during my 20 years in the health insurance business. 

I know the game. And I know that despite all the arrows 40 members of Congress on both sides of the Hill shot at Witty last Wednesday, little if anything that could significantly change how UnitedHealth and the other big insurers do business will be enacted this year. 

Some reforms that would force their pharmacy benefit managers to be more “transparent” and that would ban some of the many fees they charge might wind up in a funding bill in the coming months, but you can be sure Big Insurance will spend millions of your premium dollars to keep anything from passing that might shrink profit margins even slightly.

Money in politics is the elephant in any Congressional hearing room or executive branch office you might find yourself in (and it’s why I coauthored Nation on the Take with Nick Penniman).

You will hear plenty of sound and fury in those rooms but don’t hold your breath waiting for relief from ever-increasing premiums and out-of-pocket requirements and the many other barriers Big Insurance has erected to keep you from getting the care you need.

It is those same barriers doctors and nurses cite when they acknowledge the “moral injury” they incur trying to care for their patients under the tightening constraints imposed on them by profit-obsessed insurers, investors and giant hospital-based systems. 

Funny not funny

Cartoonist Stephan Pastis captured the consequences of the corporate takeover of our government, accelerated by the Supreme Court’s 2010 landmark Citizens United vs. Federal Election Commission ruling, in his Pearls Before Swine cartoon strip Sunday. 

Rat: Where are you going, Pig?

Pig: To a politician’s rally. I’m taking my magic translation box.

Rat: He doesn’t speak English?

Pig: He speaks politicianish. This translates it into the truth. Come see.

Politician: In conclusion, if you send me to Washington, I’ll clean up this corrupt system and fight for you everyday hard-working Americans. God bless you. God bless the troops. And God bless America.

Magic translation box: I am given millions of dollars by the rich and the powerful to keep this rigged system exactly as it is. Until you change that, none of this will ever change and we’ll keep hoping you’re too distracted to notice. 

Politician’s campaign goon: We’re gonna need a word with you.

Magic translation box: This is too much truth for one comic strip. Prepare to be disappeared.

Rat: I don’t know him.   

Back to Sir Witty’s time on the hot seat. It attracted a fair amount of media coverage, chock full of politicians’ talking points, including in The New York Times and The Washington Post. (You can read this short Reuters story for free.) Witty, of course, came equipped with his own talking points, and he followed his PR and legal teams’ counsel: to be contrite at every opportunity; to extol the supposed benefits of bigness in health care (UnitedHealth being by far the world’s largest health care corporation) all the while stressing that his company is not really all that big because it doesn’t, you know, own hospitals and pharmaceutical companies [yet]; and to assure us all that the fixes to its hacked claims-handling subsidiary Change Healthcare are all but in.

Congress? Meh. Paying for care? WTF!

Wall Street was relieved and impressed that Witty acquitted himself so well. Investors shrugged off the many barbs aimed at him and his vast international empire. By the end of the day Wednesday, the company’s stock price had actually inched up a few cents, to $484.11. A modest 2.7 million shares of UnitedHealth’s stock were traded that day, considerably fewer than usual. 

Instead of punishing UnitedHealth, investors inflicted massive pain on its chief rival, CVS, which owns Aetna. On the same day Witty went to Washington, CVS had to disclose that it missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point Wednesday before settling at $56.31 by the time the New York Stock Exchange closed. An astonishing 65.7 million shares of CVS stock were traded that day. 

The company’s sin: paying too many claims for seniors and disabled people enrolled in its Medicare Advantage plans. CVS’s stock price continued to slide throughout the week, ending at $55.90 on Friday afternoon. UnitedHealth’s stock price kept going up, closing at $492.45 on Friday. CVS gained a bit on Monday, closing at $55.97. UnitedHealth was up to $494.38.

Postscript: I do want to bring to your attention one exchange between Witty and Rep. Buddy Carter (R-Ga.) during the House Energy and Commerce committee hearing. Carter is a pharmacist who has seen firsthand how UnitedHealth’s virtual integration–operating health insurance companies with one hand and racking up physician practices and clinics with the other–and its PBM’s business practices have contributed to the closure of hundreds of independent pharmacies in recent years. He’s also seen patients walk away from the pharmacy counter without their medications because of PBMs’ out-of-pocket demands (often hundreds and thousands of dollars). And he’s seen other patients face life-threatenng delays because of industry prior authorization requirements. Carter was instrumental in persuading the Federal Trade Commission to investigate PBMs’ ownership and business practices. He told Witty: 

I’m going to continue to bust this up…This vertical integration in health care in general has got to end.

More power to you, Mr. Carter. 

Cartoon – Problem with US Healthcare

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Hospital and Health System M&A: Q1 2024 Review

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M&A Volume Up in Q1 2024 vs. Q1 2023: $10 billion Target Revenues


The number of hospital and health system M&A deals announced in the first quarter of 2024 was significantly higher than in the same period in 2023: 18 announced transactions with $10 billion in total revenues for the targets vs. 12 deals in Q1 2023 with a total of $3.4 billion in revenues for the targets. The 81 deals announced in the last 12 months is the highest it
has been over the last few years, building upon the recent momentum of hospital and health system mergers, acquisitions, and divestitures across the country.

Other observations by the Cain Brothers M&A team:

  • Significant number of for-profit conversions to not-for-profit (e.g., divestitures by Tenet and HCA)
  • Significant number of divestitures by national systems to regional health systems
  • Accelerated closing timeline for 3 deals in CA: closed in 30-60 days — prior to new hospital merger review process going into effect April 1, 2024 in CA
  • Q1 2024 total volume of 18 transactions with $10 billion in revenues for targets vs. $3.4 billion for Q1 2023
    This quarter saw transformative deals that may reshape how healthcare is delivered, reflecting creative partnerships that continue to form in a changing healthcare environment. Academic medical centers continue to make investments in assets
    of high strategic value to expand their clinical, teaching, and research capabilities. Large regional systems were quite active, with large cross regional mergers and smaller strategic acquisitions. With the Consumer Price Index (CPI) holding steady with the previous quarter, alleviation of supply cost pressures will benefit health system financials and allow them to deploy more capital.

In early January, General Catalyst’s healthcare investment subsidiary, Health
Assurance Transformation Corporation (“HATCo”), announced its intent to
acquire Summa Health, one of the largest integrated health delivery systems in
Ohio. This announcement made waves in the healthcare industry, not just
because of the size of the acquisition, but because it is the first major health system
investment for newly formed HATCo. General Catalyst, a venture capital firm
formed in 2000, is known for its investments in global companies including Airbnb,
Warby Parker, Snap, and Kayak. General Catalyst launched HATCo in October
2023 as a vehicle to enable health systems to enhance technological health
capabilities, improve financial results, and assist in meeting the shift to value based care, creating a sustainable and quality-driven healthcare model for providers and patients.

Under the terms of the deal, Summa Health will become a subsidiary of HATCo
and transition from a not-for-profit to a for-profit corporation. A community
foundation will be formed to continue to invest in the social determinants of health
to enhance community outcomes in the Akron-Canton region. With its first
acquisition, HATCo aims to become a chassis for future acquisitions and growth
for General Catalyst. The deal is expected to close by the end of 2024.

Academic medical centers were active acquirers in the first quarter of 2024. On
the West Coast, two University of California systems announced acquisitions from
for-profit operators. In January, UCLA Health announced it is the process to
acquire West Hills Hospital and Medical Center from HCA. The 260-bed hospital
is located in the San Fernando Valley, north of Los Angeles, and will be UCLA’s
first acute care hospital in the area. In February, UC Irvine Health signed a
definitive agreement to acquire Tenet’s Pacific Coast Network, which include
four hospitals in Los Angeles and Orange counties (see below for transaction
multiples). The acquisition greatly expands UCI Health’s presence and inpatient
bed capacity to complement their flagship UCI Medical Center in Orange. These
deals come off the heels of two other University of California deals announced in
2023; UC San Diego Health’s acquisition of Alvarado Hospital from Prime
Healthcare, and UCSF’s announcement to acquire two San Francisco hospitals
from Dignity Health, further demonstrating the UC system’s mandate to grow and
provide greater access to care in California.


Further east, the University of Minnesota announced in February its intent to
reacquire the University of Minnesota Medical Center from Fairview Health.
The University of Minnesota Regents voted to support a nonbinding letter of intent
with Fairview that would provide the ability for the University’s eventual ownership
of the medical center by 2027. The University of Minnesota previously sold the
medical center to Fairview in 1997.


In January, Penn Medicine announced it intends to acquire Doylestown Health,
a single-hospital system in Bucks County, PA. The seventh hospital for Penn
Medicine, the acquisition of Doylestown Health follows a trend of expansion for
Penn Medicine, with the acquisition of Chester County Hospital, Lancaster General
Health, and Princeton Health all within the past 10 years. The transactions by
academic health systems this quarter continue to follow the trend of AMC
expansion through development of new entry points into their care network,
investments in community health, and developing the ability to expand their
teaching and research capabilities.

In addition to the sale of its Pacific Coast Network to UC Irvine Health, Tenet also
sold Sierra Vista Regional Medical Center and Twin Cities Community
Hospital to Adventist Health in California. The two hospitals, located in San Luis
Obispo County in Central California, were sold to Adventist Health for
approximately $550 million, implying a Revenue and EBITDA multiple of 1.6x and
14.5x, respectively. The Pacific Coast Network transaction to UCI Health
announced in February came with a $975 million price tag, reflecting a 1.0x
multiple of revenue and 13.7x multiple of EBITDA. These transactions follow trends
of Tenet’s strategic divestitures in high value deals and reflect a broader trend of
acquisitions of targets of high strategic value to health systems. It is worth noting
that part of the reason for higher multiples in these California transactions is that
buying is still cheaper than the high cost to build.


Regional expansion continued this quarter in the Northeast with Nuvance Health’s
announcement in February that it will be joining Northwell Health. With seven
hospitals in Nuvance and the largest in the State of New York with Northwell, the
organizations would merge to form an integrated healthcare delivery system of 28
hospitals, 15,000 physicians, and over 1,000 care sites. In July 2023, Nuvance
received a credit downgrade from Moody’s driven by weakened operating
performance and reduced liquidity. As stated by both organizations, the merger
also allows Northwell to expand into Connecticut while making significant
investments in Nuvance’s existing clinical care footprint.


On the other hand, a number of regional mergers in recent years have been called
off, including this quarter with the cancellation of the proposed merger between
Essential Health and Marshfield Clinic. Previously announced in July 2023, the
health systems formally ended merger discussions in January, determining that
the affiliation was not the right path for the organizations. Marshfield previously
paused merger discussions with Gundersen Health System in 2019.

There were also a number of single hospital acquisitions and tuck-in transactions for larger systems. Below are highlights of a few other notable transactions announced this quarter:

In February, St. Louis- based Mercy announced its plans to acquire Via Christi Hospital, its
related physicians and other ancillary healthcare locations from Ascension. 152-bed Via Christi
hospital will be Mercy’s third hospital in Kansas, as Mercy continues to grow westward. In 2023,
Mercy acquired SoutheastHEALTH followed by its acquisition of Hermann Area District Hospital.

In January, Northern New Jersey health systems, CarePoint Health and Hudson Regional
Hospital announced they are seeking to form a new combined entity that will merge the for-profit and not-for-profit hospitals together. Hudson Health System will be the new namesake of the four hospital system. Under the proposed agreement, two of the four hospitals will remain not-for-profit safety net hospitals. The unique arrangement comes after the New Jersey Department of Health confirmed that CarePoint was in financial distress and began to work with local government leaders on a solution. CarePoint executive leaders confirmed the arrangement with Hudson Regional will improve the organization’s operational and financial strength.

Also in New Jersey, Atlantic Health System announced in January its intent to merge with Saint
Peter’s Healthcare. Atlantic Health, located in Morristown, NJ, is a seven-hospital health system
with locations across New Jersey and Pennsylvania. Saint Peter’s Healthcare is a catholic not-forprofit system with a 478-bed flagship hospital in New Brunswick, NJ. The announcement follows a 2022 judgment by the FTC to block a proposed merger between Saint Peter’s Healthcare and RWJBarnabas Health, citing the deal would cause anti-competitive concerns with merging New Brunswick’s only two hospitals.

WellSpan Health signed a definitive agreement to acquire Evangelical Community Hospital, a
131-bed acute care hospital in Lewisburg, PA. With the pending acquisition, the hospital will
become WellSpan Evangelical Hospital and will continue to serve the Central Susquehanna Valley. WellSpan is an eight-hospital system, serving six counties in Pennsylvania and two counties in Maryland. The deal is expected to close in July.

Each quarter, health system acquirers typically cite the need to grow and the desire to enchance clinical outcomes as motivating factors for deal activity. On the other hand, as we are seeing play out in real time, financial challenges area key driver of M&A for sellers. California-based Pipeline Health faces financial challenges as it retrenches its existing portfolio. In late 2023, Pipeline exited the Texas market driven by unsustainable financial losses. This example highlights the need for health systems to match mission-driven growth objectives with the reality of a harsh and volitile operating environment.


Portfolio rationalization, AMCs with the capital to make big bets, and inter-regional consolidations are major trends that will continue into 2024. With an election looming and an uncertain healthcare and regulatory landscape, affiliation opportunities will need to be thoughtful and metric driven.

Hospitals’ forced makeover

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Hospitals’ business models are being upended by fundamental changes within the health care system, including one that presents a pretty existential challenge: People have far more options to get their care elsewhere these days.

Why it matters: 

Health systems’ responses to major demographic, social and technological change have been controversial among policymakers and economists concerned about the impact on costs and competition.

  • Communities depend on having at least some emergency services available, making the survival of hospitals’ core services crucial.
  • But without adaptation — which is already underway in some cases — hospitals may be facing deep red balance sheets in the not-too-distant future, leading to facility closures and shuttered services.

The big picture: 

Many hospitals have recovered from the sector’s post-pandemic financial slump, which was driven primarily by staffing costs and inflation. But systemic, long-term trends will continue to challenge their traditional business model.

  • Many of the services that are shifting toward outpatient settings — like oncology, diagnostics and orthopedic care — are the ones that typically make hospitals the most money and effectively subsidize less profitable departments.
  • When hospitals lose these higher-margin services, “you’re starving the system that needs profits to provide services that we all might need, but particularly uninsured or underinsured people might need,” said UCLA professor Jill Horwitz.

And hospitals have long claimed that much higher commercial insurance rates make up for what they say are inadequate government rates.

  • But as the population ages and moves out of employer-sponsored health plans, fewer people will have commercial insurance, forcing hospitals to either cut costs or find new sources of revenue.

By the numbers: 

Consulting firms are projecting a bleak decade for health systems.

  • Oliver Wyman recently predicted that under the status quo, hospitals will need to reduce their expenses by 15-20% by 2030 “to stay viable.”
  • Boston Consulting Group last year projected that health systems’ annual financial shortfall will total more than $200 billion by 2027, and their operating margins will have dropped by 10 percentage points.
  • To break even in 2027, a “typical” health system would need payment rate increases of between 5-8% annually — twice the rate growth over the last decade, according to BCG. If the load is borne solely by private insurers, hospitals will need a 10-16% year-over-year increase.

Between the lines: 

This is the lens through which to view health systems’ spree of mergers and acquisitions, which have increasingly drawn criticism from policymakers, regulators and economists as being anticompetitive.

  • For better or worse, when hospitals have a larger market share, they are in a better position to negotiate and bring in more patients, and they can dilute some of the financial pain of poorer-performing facilities.
  • And when they acquire physician practices or other outpatient clinics, they’re still getting paid for delivering care even when patients aren’t receiving it in a traditional hospital setting.
  • “I think the hospitals have sort of said … ‘We can keep doing things the same way and we can just merge and get higher markups,'” said Yale economist Zack Cooper. “That push to consolidate is saying, ‘Let’s not move forward, let’s dig in.'”

Yes, but: 

A big bonus of outpatient care is that it’s supposed to be cheaper. But when hospitals charge more for care than an independent physician’s office would have, or they tack on facility fees, costs don’t go down.

  • And there’s a growing body of research showing that when hospitals consolidate, costs go up.
  • “They’ve protected their portfolio, and that’s added to the cost of health care,” said Johns Hopkins professor Gerard Anderson.

The other side: 

Hospitals are typically on the losing end of negotiations with insurers right now, thanks to how large insurers have become, and are “in an extremely difficult competitive position,” said Ken Kaufman, co-founder of consulting agency Kaufman Hall.

  • Criticizing their mergers and acquisitions as anticompetitive is a “complete misunderstanding of the situation,” he said, and moving toward a new care model will take “an incredible amount of resources.”

Reality check: 

Hospitals account for 30% of the country’s massive health spending tab, and they’ll have to be at the forefront of any real efforts to contain costs.

  • They’re also anchors in their communities and are powerful lobbyists, which helps explain why Congress has struggled to modestly reduce what Medicare pays hospital outpatient departments.

Where Does Medicare Go From Here: Profit-Driven Chaos or Patient-Centered Community?

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After covering the Medicare privatization crisis for over two years, an investigative reporter takes a step back and examines what’s at stake.

Medicare, the country’s largest and arguably most successful health care program, is under duress, weakened by decades of relentless efforts by insurance companies to privatize it.

A rapidly growing Medicare Advantage market — now 52% of Medicare beneficiaries, up from 37% in 2018 — controlled by some of the largest and most powerful corporations in the world, threatens to both drain the trust fund and eliminate Medicare’s most important and controversial component: its ability to set prices. 

It is not an overstatement to call it a heist of historic proportions, endangering the health not only of the more than 65 million seniors and people with disabilities who depend on Medicare but all Americans who benefit from the powerful role that Medicare has historically played in reining in health care costs.

The giant corporations that dominate Medicare Advantage have rigged the system to maximize payments from our government to the point that they are now being overpaid between $88 billion and $140 billion a year. The overpayments could soar to new heights if the insurers get their way and eliminate traditional Medicare.

All of America’s seniors and disabled people who depend on Medicare could soon be moved to a managed care model of ever-tightening networks, relentless prior authorization requirements and limited drug formularies. The promise of a humane health care system for all would be sacrificed at the altar of the almighty insurer dollar. 

The Medicare Payments Advisory Commission (MedPAC), the independent congressional agency tasked with overseeing Medicare, last month released a searing report which found that Medicare spends 22% more per beneficiary in Medicare Advantage plans than if those beneficiaries had been enrolled in traditional fee-for-service Medicare. That’s up from a 6% estimate in the prior year.  

A similar cost trend exists for diagnosis coding.

Medicare Advantage plans and their affiliated providers increasingly upcoded diagnoses to get higher reimbursements. In 2024, overpayments due to upcoding could total $50 billion, according to MedPAC, up from $23 billion in 2023. These enormous overpayments drive up the cost of premiums — MedPAC’s conservative estimate is that the premiums paid to Medicare out of seniors’ Social Security checks will be $13 billion higher in 2024 because of those overpayments. 

There is evidence that Americans and lawmakers are starting to wake up.

Medicare Advantage enrollment growth slowed considerably in 2023. Support within the Democratic Party for Medicare Advantage is cratering. In 2022, 147 House Democrats signed an industry-backed letter supporting Medicare Advantage. This year, just 24 House Democrats signed the letter. Earlier this month, the Biden administration cut Medicare Advantage base payments for the second year in a row (while still increasing payments overall), over the fierce opposition of the insurance lobby. The investment bank Stephens called Biden’s decision a “highly adverse” outcome for insurers. Wall Street has taken note, punishing the stock price of the largest Medicare Advantage insurers, with Barron’s noting that Wall Street’s “love affair” with Humana is “ending in tears.” The cargo ship is turning. It is up to us to determine if that will be enough. 

We can’t attack a problem if we don’t know how to diagnose it. I spoke with some of the most knowledgeable critics of Medicare Advantage about the danger the rapid expansion of Medicare privatization presents to the American public.

Rick Gilfillan is a medical doctor who in 2010 became the first director of the Center for Medicare and Medicaid Innovation (CMMI). He would go on to serve as CEO of Trinity Health from 2013 to 2019. In 2021 he launched an effort to halt the involuntary privatization of Medicare benefits. 

“Right now, all investigations are finding tremendous overpayments,” Gilfillan said. “The overpayments are based on medical diagnoses that may or may not be meaningful from a patient care standpoint. Insurers are using chart reviews, nurse home visits and AI software to find as many diagnoses as possible and thereby inflate the health risks of the patients and the premium they get from Medicare. The overpayments are just outrageous,” he said.

The problem could get worse if the Supreme Court curtails the powers of regulatory agencies, as it may do this year.  “It would make a huge difference in what CMS would be able to do,” Gilfillan said.

The logic behind Medicare privatization is that seniors and people with disabilities use too much care, egged on by their doctors. If true, a solution could have been to enforce the Stark Law, which bans physicians from having financial relationships with providers they refer to, or other anti-kickback statutes. States could also enforce laws 33 of them have enacted that prohibit the “corporate practice of medicine.” 

Instead, health insurers were invited and incentivized by previous administrations to compete with the original Medicare program and “manage” beneficiaries’ care. Under this model— set in its modern form in 2003 — Medicare Advantage insurers are paid a rate based on a complex risk modeling process and estimated costs.

But Medicare Advantage plans have never been cheaper than traditional Medicare, as MedPAC has repeatedly pointed out.  

This is a far more complex approach than the fee-for-service model in which CMS sets prices in health care in a public and transparent manner, Gilfillan notes. The prices negotiated by Medicare Advantage companies, by contrast, are not disclosed.

“With fee-for-service, a patient is provided a service, treatment or medication. The physician who provides the service charges a specific amount for that service,” Gilfillan said. “And then Medicare  pays whatever it decided it was worth for that service. The benefit is you pay for what you get.”

Some Medicare Advantage plans use a “capitated” approach in paying primary care physicians. The amount is based on the premium they receive for the patient. The more codes submitted, the higher the capitation, the greater the profit. That approach is having far-reaching economic impacts on health care, said Hayden Rooke-Ley, an Oregon-based lawyer and health care consultant who co-authored a recent New England Journal of Medicine article on the corporatization of primary care. It is the capitation model, he says, that drives the rampant upcoding among Medicare Advantage plans. 

From Horizontal to Vertical

“An undercovered aspect of Medicare Advantage is the way it is fueling vertical consolidation” in the insurance business, Rooke-Ley added, noting that until recent years, insurers bulked up by buying smaller competitors (known as horizontal integration). “With so much government money, we’re seeing insurance companies restructuring themselves as vertically integrated conglomerates [through the acquisition of physician practices, clinics and pharmacy operations] to become even more profitable, especially in Medicare Advantage.”

“A key part of this strategy is to own primary care practices,” he said, citing Humana’s partnership with the private-equity firm Welsh Carson to become the largest owner of Medicare-based primary care, CVS/Aetna’s acquisition of Oak Street, and UnitedHealth’s roll up of doctors practices across the country.

As Rooke-Ley explained, control of primary care allows insurance companies to more easily manipulate “risk scores” to increase payments from the government by claiming patients are in worse health than they really are.

“The easiest way to increase risk scores, short of simply fabricating diagnosis codes, is to control the behavior of physicians and other clinicians,” he said. 

“When an insurance company owns the physician practice, it can configure workflows, technology, and incentives to drive risk coding.

UnitedHealth, for example, can preferentially schedule Medicare Advantage patients – and it can choose to reach out to health plan enrollees it identifies with its data as having high ‘coding opportunities.’ It can require its doctors to go to risk-code training, and it can prohibit doctors from closing their notes before they address all the ‘suggested’ diagnosis codes.” 

“While Medicare Advantage insurance companies tout all their provider acquisitions as investments in value-based care, the concern is that it’s really just looking like a game of financialization,” Rooke-Ley said. “MA was supposed to save Medicare money, but the exact opposite has happened.

According to MedPAC, the government will over-subsidize MA to the tune of $88 billion this year, with $54 billion of that due to excess risk coding relative to what we see in traditional Medicare. That’s a staggering amount of money that could go directly to patients and clinicians by strengthening traditional Medicare.”   

Two Possible Futures

There are two options for the future of Medicare, said Dr. Ed Weisbart, former chief medical officer of the pharmacy benefit manager Express Scripts, which Cigna bought in 2018, who now leads the Missouri chapter of Physicians for a National Health Program.

In one future, he said, “We will change the trajectory and get rid of the profiteers, and manage to divert the funds that are being profiteered to patient care.”

In another future, the business practices of Medicare Advantage plans “will be unfettered and more damaging and harmful than they are today,” he said. “If we continue on this course we’ll find an increasingly polarized health care system that caters increasingly to the wealthy and privileged. The barriers to care will be worse.”